Onthe weight scale of market strength, Clark Brands LLC is the puny kid on the beach, overwhelmed by musclebound giants such as Exxon- Mobil, BP and Shell.
But on a bodybuilding program that would make Charles Atlas proud, the Naperville, Ill.-based company is looking to double its footprint, stretching into new markets from the Dakotas to Texas, New Mexico to Michigan.
“We grow in areas where the majors have vacated because of supply or we grow with our partner marketers by providing an alternative offer to the majors,” says Gregory Mauro, Clark’s communications and marketing manager. “There are [retailers] who just don’t want to brand with the majors. They don’t want to sign a long-term agreement.” Clark isn’t alone. A small group of regional brands—a mix of mid-tier suppliers and marketers—are ramping up a slew of enticements aimed at persuading fuel distributors and c-store operators to embrace their fl ag. The incentives include marketing enhancements and revamped branded images and payment offerings, all in the hopes of winning a multiyear, exclusive forecourt contract.
A two-month review by CSP involving interviews with about 20 companies and experts reveals the following:
Plastic Power: Several regional oil marketer/refi ners are expanding branded credit-card offerings, check-processing programs and even gift-card options.
Coast to Coast: Some brands, notably Valero Energy and Gulf Oil, are expanding from regional to national. Valero, for instance, recently unveiled its teal-and-yellow moniker at several new outlets, including in central Mississippi with Kelley Oil Inc. “As the Valero brand continues to grow, especially in the Southeast, we look forward to being part of that growth,” Terry Kelley says of the deal.
Revitalizaton: After taking a hit during the Bush-Chavez tete-a-tete, Venezuela-based CITGO is bounding with newfound optimism—and for good reason. The company earlier this year rolled out a platform of improvements, including its new Centennial station image and partnership with loyalty companies such as Outsite Networks and Centego. Stepped-up services, coupled with a ready fuel supply and lower-cost alternative, have helped CITGO add 450 locations in each of the past two years, according to the company.
Positive Transitioning: In Texas, Alon is swapping out the legacy FINA fuel brand with its ALON brand. Already fielding a network of 900 wholesale and company-owned sites, Odessa-based Alon is pursuing a national brand strategy. “We literally could double our size within our current boundaries,” president and CEO Kyle McKeen tells CSP.
New Landscape: Higher fuel economy (CAFE) standards on cars, coupled with steep prices at the pump and declining fuel margins, have prompted major oil companies to exit several markets where they are not top players, giving way to new opportunities for regional and local brands.
It would be simple-minded to dismiss major oil or discount the slew of initiatives the companies have initiated in recent years, from anti-drive-off security at the fuel island to effective cents-off branded credit cards.
A glance at banner presence easily favors Big Oil. According to OPIS, for example, Shell’s flag waves at nearly 14,500 stations across the United States. Marathon, the largest regional banner, stands at less than 40% of that total, with 5,368. (See chart at right.)
Simply put, Big Oil’s retail presence is alive and well—just not as big or alive as a decade ago.
“If you think Big Oil is going away, think again,” says Cathy Duncan, executive director of marketer solutions for Omaha, Neb.-based Telvent DTN. “Big Oil is doing what they want to be doing. They’re not losing business where they choose not to lose business.
“That said, Big Oil would rather pick and choose where they do business, and with whom they want to do business,” she continues. “If they’re not No. 1 or 2 or 3 in a market, they’re pulling out. And that is giving more opportunity to many of these regional brands to come in and scoop up some volume.”
Ken Shriber, managing director of consultancy Petroleum Equity Group in Chappaqua, N.Y., observes the same trend: major oil pulling out of markets where it is either not a brand leader or where the cost of doing business loses out to sliding profit margins.
“It wasn’t so long ago where you had majors in every city,” Shriber says. “You’ll still find them in most, but you won’t see as many majors and, in some cases, you won’t find them at all.
“Instead,” he continues, “you’re going to see more independents take on a greater share of the markets because they can afford to operate at a lower margin. And at the same time, they’re improving on image standards, credit cards and other services.”
It’s no secret that most of the majors—notably BP, ExxonMobil, Chevron, ConocoPhillips and Shell—have shifted attention to lucrative upstream opportunities. As part of the move, they have culled directoperated retail networks, selling off much of their downstream oversight to independent fuel marketers and midsized to large retail chains such as Alimentation Couche-Tard and 7-Eleven, maintaining fuel-supply agreements when possible. Additionally, they have gradually increased volume benchmarks and overall performance standards, driving out many smaller operators with two to four multi-pump dispensers (MPDs).
In this wake, a mélange of mid-tier brands—some with their own fuel supplies, others without—has arisen to satisfy retailer tastes with a blend of fresh canopy imaging, margin improvements and better one-on-one customer relations. Just recently, Framingham, Mass.- based Gulf Oil LP inked a deal with Satterfield Oil Co. of central Arkansas to rebrand up to seven sites in 2012. Albeit modest in scope, the deal is exactly what Gulf CEO Joe Petrowski and senior vice president Rick Dery promised just a few years ago.
Dery, who also wears the hat of chief sales and marketing officer, called the Arkansas move “an important milestone for Gulf as we continue our national downstream expansion.”
Better known as an East Coast operation with flags stretching along the Atlantic, Gulf is rapidly moving into the South and as far west as Minnesota and Texas; it boasts a retail presence of more than 2,500 stations.
“To say that Gulf is merely in a ‘growth mode’ would be an understatement,” Dery tells CSP. “We have tripled our field presence in expansion markets and have joined virtually every regional petroleum trade organization available to us in these new markets.
“Our primary focus is to identify and work with great distributor partners in every market. While our focus has been initially on PADD1 and PADD2, we have branding opportunities in both PADD 3 and 4, as well as a new partner in Puerto Rico.”
And Gulf is hardly alone in this competitive landscape. Houston-based CITGO is another example. Swirling in a political maelstrom that saw it pull out of 10 Midwestern states only six years ago, the company is targeting 8% overall growth in 2012 and recently bolstered its forecourt and backcourt program to its distributor class of trade. (CITGO does not own or operate any retail sites.)
The company, according to Gustavo Velazquez, CITGO vice president of supply and marketing, is seeking to differentiate itself through “flexibility, strong marketing programs and exceptional service, reinforcing our brand position as the most human, caring oil company.”
While CITGO declined to identify growth targets, it is publicizing many new programs that are not only aimed at expanding its network but also strengthening the quality of its sites through more stringent mystery shops that carry both rewards and penalties for strong- and weak-performing outlets.
“Programs such as our new Centennial image, enhanced mystery shop, new loyalty program, new Good Rewards consumer promotion and Fueling Good are crucial to support our marketers and retailers in the current business environment,” Velazquez says.
The company detailed these programs, which seek to strengthen operations and profitability, during 18 marketer roundtable meetings recently concluded, he says. “The new Centennial image has contributed to the addition of nearly 450 new locations in each of the last two years and we anticipate this positive growth trend to continue in 2012,” he says.
Think of the old-school traveling salesmen or the Avon lady—only here we have a row of fuel brands knocking on the doors of fuel marketers, c-store chains and independent operators.
Some of the deals have, frankly, been eye-popping. The biggest is Marathon Petroleum’s exclusive agreement signed in July 2010 to supply 600 of The Pantry’s 1,600-store network across the Southeast. (The alliance has since grown to nearly 700 sites.)
As part of the deal, the Enon, Ohiobased oil company agreed to something extraordinarily rare in fuel-retail relationships: It took the unusual step of launching a customized ad campaign jointly promoting its brand and The Pantry’s Kangaroo Express stores. (Visit www. cspnet.com/PantryMarathon for more.)
“The deal was a coup for The Pantry and made good sense for Marathon,” a source familiar with the deal tells CSP on condition of anonymity. “The Pantry got a fabulous pricing deal. And in return, Marathon got a long-term deal with huge volumes. When you’re willing to commit that kind of volume for a long time, it’s a give-and-take in which both companies win.”
Such grandiose pacts, however, are the anomaly. More common are agreements inked with operators of 20 or fewer locations—a rich terrain when considering that single-store operators make up 58% of all convenience stores.
“This is good for the retailers and the jobbers,” consultant Shriber says of the rise of regional fuel players. “Many of these companies are putting out very compelling offerings into the marketplace, including dollars for image upgrades, for advertising, for in-store services.
“Their marketing is more focused on the individual retailer, whereas the majors were more focused about their brand,” he continues. “What you’re seeing today is a courtship between these fuel brands and the jobbers and retailers.”
Traveling through the Deep South, it was commonplace a few years ago to find BP or Shell or, for the price-conscious, CITGO. But today, Gulf, Valero, Marathon and others are chipping away at that share and capturing a niche presence.
Kelley, of Kelley Oil in Waynesboro, Miss., echoes the sentiment of many when, of his deal with Valero, he says, “Although the Valero name is new to many motorists in these parts, it is well known in the industry as one of America’s largest refiners and suppliers of quality fuels to thousands of independently owned gasoline stations like ours.”
This scene is playing out across the country, with small and moderate-size jobbers and retailers signing with brands that either didn’t exist in their markets just a few years ago, or whose offerings failed to measure up against the majors.
“When smaller stations are competing against the bigger independent chains, they need a brand [value] to help them,” says Fred Rozell, director of retail pricing for OPIS, Wall, N.J. “And the mid-tier brands are coming in to help. They see an opportunity to partner with many of the smaller retailers.”
This is precisely the strategy of Clark Brands. “For the marketer, we’re a utility tool to help retain or acquire those dealers that don’t want to sign with the majors,” says Mauro of Clark. “And we’re also the go-to folks when you’ve got a new location or a single-store offering that has a special need that the majors may not address.”
And like the independent c-stores, smaller and midsize jobbers are also working with more regional fuel brands. “Four thousand of our members are in fuel marketing, and I would say all of them have relationships with at least two to three brand options,” says PMAA president Dan Gilligan. “They’re looking for the brand options. None of them are solely wedded to major brands, because they want to give their retailer networks the best options. “We have members who have converted some of their sites from major oil to Valero or Gulf or Clark. As the major brands’ standards get more difficult, I think what you’re seeing are jobbers who are adding more local brands to give their dealers more flexibility to have a brand that has programs and an image.”
A Difficult Decision
Deciding which fuel brand to partner with is increasingly complicated. Historically, retailers hitched their store on the reputation of a prominent flag. Align with a major and your business instantly won credibility.
This scene has dramatically changed over the past 15 years. Indeed, the recently released 2012 NACS Consumer Fuels Report suggests that primacy of the gasoline brand continues to decline.
When consumers were asked which factor was the most important in their buying decision, brand finished third, falling from 10% in 2008 to 8% in 2012, according to John Eichberger, NACS’ vice president of government relations. Not surprisingly, price dominated and location finished second.
However, brand name remains an important attribute, Eichberger and others are quick to underscore. But other elements have come to the fore, especially for retailers. Among those factors: guaranteed supply, pricing and pricing flexibility, loyalty and credit-card programs, image and security incentives, and customer service.
“It’s about the value and perceived value to the customer,” Eichberger says. “How is the brand viewed? If it’s a strong private brand, it can compete quite well head to head against a major oil brand.”
“There is no one-size-fits-all when it comes to choosing a brand,” says Mark Hawtin, senior vice president of strategy and business development for KSS Fuels, Florham Park, N.J. “We see the decision is becoming more complex to the retailer.” And it’s about to become more complex.
Miles to Go?
As a battle royale brews among the brands, another story is taking place that could radically alter the industry’s forecourt.
U.S. motorists drove 1.2% fewer miles in 2011, the lowest level measured since 2003, according to the Federal Highway Administration. And the distance covered has continued to drop since 2008, due to the weak economy and high prices at the pump.
And now there’s another piece to consider. The Obama administration fast-tracked by four years new CAFE standards established as part of the 2007 Energy Independence and Security Act. Instead of 2020, automakers must by 2016 deliver fleets that meet a minimum 35.5 miles per gallon. (Standards currently are determined by the 1985 requirement of 27.5 mpg.)
The CAFE changes could have a dramatic effect on retailers, Eichberger wrote recently in NACS magazine: “For a convenience store that services 277 fuel customers each day, the number of fuelbuying customers could drop to 155. … A convenience store could see 44,486 fewer customer visits per year by 2025.” The issue, he says, is more involved than how it appears. Some automakers say better mileage may also mean smaller, more efficient engines, thereby resulting in only a modest drop in fill-ups. “There’s a lot of uncertainty now,” Eichberger tells CSP. “But if vehicles are able to get 600 miles on a full tank [twice the current average], the attractiveness of the fuel island as a destination will become significantly less.” In such a scenario, two competing visions emerge. The first: Major oil brands will become even more valuable. If I’m filling up less frequently, the logic goes, then I’m willing to pay a few more cents to get the gasoline with the best additives to protect my engine. Then there’s the other view: Fuel brands will be defined almost exclusively by consumer incentives and the c-store brand. In other words, gas becomes strictly a commodity. And in such a case, mid-tier and private-label brands win the day. Thus, it’s not surprising that companies such as Clark, CITGO, Marathon and others are increasingly investing in the consumer loyalty package. “Our survey showed that in gas stations that offered a loyalty discount, 84% of consumers shopped at those locations,” Eichberger says. “It’s a big deal and it will probably get bigger.”
Breaking Down the Brands
Headquarters: San Antonio
Brand Network: More than 4,000 branded retail sites in 40 states, with an expanding branded presence in south central Mississippi. Valero offers assistance with signage as well as a proprietary credit card, point-of-sale incentives and other marketing programs.
Big Quote: “Valero has been successful in rebranding stations that had been branded with major integrated companies and with picking up new sites.”
Big Move: New growth markets include the Great Lakes, Mid-Atlantic and Southeast, after starting in the Southwest, West and Midwest.
Headquarters: Enon, Ohio
Brand Network: More than 5,000 locations across 18 Midwest and Southeast states, a 9% increase since 2009.
Big Quote: “It may seem obvious, but our success as a brand is tied directly to our jobbers’ success.”
Big Move: Marathon supplies nearly 700 of The Pantry’s 1,600-store network across the Southeast; it has targeted this region for growth with the addition of several jobbers whose footprints span regional to multistate presences. New initiatives to build the brand include the Marathon Spirit Fund, which offers co-investment opportunities for imaging or technology; a new co-brand card; and a loyalty program.
Brand Network: 3,349 distributoroperated, 507 dealer-operated and 542 franchisee-owned and -operated locations in 24 states.
Big Quote: “An area of opportunity for us to unlock even more value out of our real estate is by changing our mindset from a fuels retailer that also sells some convenience items to a convenience retailer that retails fuels.”
Big Move: As it looks to sell off its struggling refi ning arm, Sunoco intends to focus on its profi table logistics and retail businesses, particularly in Pennsylvania, Delaware and New Jersey.
Headquarters: Woodbridge, N.J.
Brand Network: 1,360 Hess-branded locations (as of Dec. 21, 2011) across 16 East Coast states, from New Hampshire to Florida.
Big Quote: “We are pursuing targeted growth opportunities for companyoperated locations, both new builds and rebuilds, in our key markets.”
Big Move: “We have a comprehensive strategy that includes new-product offerings, new store layouts, new promotions and use of social media.”
Brand Network: 400 CITGO-branded marketers with approximately 6,000 retail locations in 27 states east of the Rockies, and District of Columbia.
Big Quote: “Our strategy is to continue our focus on the distributor class of trade, just as we always have, and differentiate the CITGO brand through fl exibility, strong marketing programs and exceptional customer service.”
Big Move: Expects to increase branded locations by 8% in 2012. Rolled out new Centennial image, enhanced mystery shop, new loyalty program and new Good Rewards consumer promotion.
Headquarters: Odessa, Texas
Brand Network: 900 wholesale and company-owned sites in Texas and New Mexico.
Big Quote: “We bring distributors the best of both worlds, by being attentive to delivering attractive, innovative services at the retail level, while maintaining strong, dependable supply lines uniquely available through our parent company.”
Big Move: Aiming to grow beyond the Southwest; expanding Clean TEAM initiative across entire Alon network; converting all FINA sites to ALON fuel brand.
Headquarters: Naperville, Ill.
Brand Network: 950 branded and unbranded sites in 29 states and the District of Columbia.
Big Quote: ”We grow in areas where the majors have vacated because of supply, or we grow with our partner marketers by providing an alternative offer to the majors. There are [retailers] who just don’t want to brand with the majors.”
Big Move: Expanding in New Mexico and Texas. ”The goal is to saturate as much of the Clark brand as we can and to spread out within the states where we are. That’s the point behind the Western expansion: establish a firm foothold, open several flagship sites, grow the brand in those states, and then move westward, and maybe northwest as time goes on.”
Headquarters: Framingham, Mass.
Brand Network: 2,500 branded locations and 1,000 private-branded locations across 27 states.
Big Quote: “To say that Gulf is merely in a ‘growth mode’ would be an understatement. We have tripled our field presence in expansion markets and have joined virtually every regional petroleum trade organization available to us in these new markets.”
Big Move: Targeting a minimum of 150 new sites per year for each of the next fi ve years.
Headquarters: San Antonio
Brand Network: Nearly 1,200 branded retail locations across 18 states in the West and Midwest, of which more than 375 are company-operated under the Tesoro, Shell and USA Gasoline brands.
Big Quote: “There are some real opportunities for us where we operate, both because of where the refineries are located along the Pacifi c Rim and in the Great Plains/Upper Midwest area. … For lack of a better term, we’re bullish on America.”
Big Move: Last fall, Tesoro announced deals with Eden Prairie, Minn.-based Supervalu Inc. and Santa Fe Springs, Calif.-based Thrifty Oil Co. that added 292 locations to its network. The deal “strengthens our refi ning and marketing integration by about 12%,” Tesoro president and CEO Greg Goff said at the time. In January, it announced plans to sell its 94,000 bpd Kapolei refi nery and associated 32 stations in Hawaii.
Top 25 Brands by Station Count
- Unbranded: 17,840
- Shell: 14,491
- BP: 9,466
- CITGO: 6,952
- Chevron: 6,473
- Exxon: 5,780
- Marathon: 5,368
- Valero: 4,915
- Sunoco: 4,843
- Mobil: 3,999
- Phillips 66: 3,048
- 7-Eleven: 2,571
- Conoco: 2,553
- Gulf: 2,184
- Texaco: 2,015
- 76: 1,936
- Casey’s: 1,722
- Sinclair: 1,647
- Cenex: 1,612
- Hess: 1,359
- Speedway: 1,318
- Arco: 1,274
- Circle K: 1,267
- Murphy USA: 1,012
- Kroger: 770